MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for August, 2010

Should Germany Get Blacklisted As Tax Haven?

Thursday, August 26th, 2010

German wealth managers are now openly promoting the country as tax haven for Swiss residents: The website of this German wealth manager basically says:

“Tax Oasis Germany: The German finance minister wants to stop tax havens worldwide. But he has overlooked one - Germany. Because Germany offers non-residents tax advantages - especially Swiss residents….”

Now, shouldn’t the OECD jump on this case and call for an emergency meeting of the G20?

 

“It will never be about you and us…

Tuesday, August 24th, 2010

…It will always be about your money” . Private bank Hyposwiss is running an advertisement making fun of the UBS claim “You and Us” . Unfortunately, UBS has just changed the ad claim to “We Will Not Rest” making the Hyposwiss joke look a bit yesterday…

 

Do-It-Yourself Passive Investing

Thursday, August 19th, 2010

The guys from Passive Investing in Geneva have just published a short but on-the-spot new DIY-guide to passive investing. It’s worth the read if you are toying with the idea to get into passive investing or if you would like to review your investment approach. Make also sure to read the MyPrivateBanking-Guide on ETF Risks. If you follow the advise of these two papers, your investment performance will probably beat 95% of conventional wealth managers…

 

Repent! The Markets Are (Again) Going To Crash…

Monday, August 16th, 2010

Here we go again, the markets will soon crash with a big kawooooooommmm and a fireball. Who says so? It’s the Hindenburg Omen, a complicated technical stock market indicator, that predicts living hell on earth for stock investors and was named after the Zeppelin Hindenburg which went up in flames and cost 35 lives. Analysts are readily jumping on the bandwagon predicting that “A savage equity downturn is imminent”. The Hindenburg Omen even made it today into the financial section of the venerable NZZ (German speaking quality paper, Zurich daily).

Now, how do the statistics look for the Hindenburg Omen? Allegedly, the Omen predicted over the last 25 years with a probability of 24% a market crash (loss of more than 15%), with a probability of 36% a panic (loss of more than 10%), with a probability of 52% a loss of more than 8% and with a probability of 76% a loss of 5% on the New York Stock Exchange. WOW! So, in 76% of cases there will be a loss of 5% within….hhhmmmmm…wait a minute. Nobody tells us wihtin which timeframe that prediction will turn into reality. The only information I can find is that for half the predictions the downturn happened latest after 41 days. So the bottomline is: May be you will lose 5% within 41 days or later. With a much smaller probability you will lose 10% or more. Sounds to me like there could be some rain tomorrow, or next week, may be also snow before Christmas. This is just another example of data mining, i.e. looking ex post for statistical correlations which - at the end of the day - turn out to be mere chance events. And, it is a bad example on top of it - given the low probabilities.

 

“No human or strategy can consistently beat the market”

Monday, August 9th, 2010

James Altucher is one of the least arogant and most knowledgeable hedge fund managers I have come across. He is a great investor but has also started some great businesses like stockpickr.com. In addition, James has written several books on investing. The Kirk Report has just run a long interview with James:

“The only three things that are important are discipline, persistence, and psychology. Without those three things there isn’t a strategy in the world that will work for you. With those three things, just about any strategy will work.(…)No human or strategy can consistently beat the market. The best traders I know are some of the most humble guys out there and have no arrogance on their market opinions at all. They are able to switch opinions and strategies very quickly. I would say that over the years any arrogance I had about any strategy has probably disappeared and now I’m appreciative of just about any strategy out there as long as it comes with persistence, discipline, and positive psychology.”

Very  wise words, indeed.

 

Quant Funds - Once Red Hot, Now Just As Bad As Other Active Funds

Wednesday, August 4th, 2010

Once upon a time, quant funds were THE investment vehicle every sophisticated investor had to be in. For instance, in 2006 Kiplinger, one of the big personal finance platforms, argued that quant funds were a revolution in active investing, taking the emotion out of investment decisions:

“Human emotion and behavior are too often the enemy of sound investment hygiene. You probably should be buying when the herd is selling and selling when the herd is buying. Many investors fall deeply in love with the stocks they own. Fund managers and Wall Street security analysts often behave like cheerleaders for the companies they’re supposed to be dispassionately analyzing. All this emotion partly explains the growing interest in so-called quantitative funds, mutual funds largely managed by soulless computers that crunch the numbers.”

So far, so good. But what happened to the quant funds of all those math whizzes? Morningstar just published an analysis of quant funds and the results are devastating:

“The carnage has been widespread. For example, seven of Bridgeway’s eight actively managed funds that rely exclusively on quant models land in the bottom third of their Morningstar categories over three years through July 28, 2010. The same is true of six of Goldman Sachs’ eight quant funds with three-year records. JP Morgan has a lineup of eight Intrepid brand quant funds, and each has lagged its typical category peer over the past three years. Vanguard’s quant group has struggled, as has AXA Rosenberg–its four Laudus funds will soon be liquidated.”

How come? Basically, quant funds use many different and complex variables to predict stock market success that showed good performance in the past. Yet, history never repeats itself exactly. The crash began in the summer of 2007. Most quant funds lost substantially and, after changing their strategies over the course of the crisis, they were then not able to profit from the upswing since 2009.

Not surprising and another confirmation that active investing will not be able to beat the market over extended times. Tragically, investors have often paid exorbitant fees to the quant funds as many of them used hedge-fund-style compensation models.

 
Subscribe